Taxation of assets (box 3) in the Netherlands

Broadstreet - News - - Taxation of assets (box 3) in the Netherlands

October 2nd, 2020

On the 15th of September 2020 the Dutch Budget for 2021 was presented and (amongst others) the plan for the box 3 taxation was revealed. The proposal published on the 6th of September 2019 has now been officially withdrawn.

The core of the responses to the previous plan from citizens and organizations is that although there is understanding for meeting people in the middle who mainly or exclusively have savings, the fixed investment return as determined in box 3 is not feasible for some categories of assets and that this is particularly the case with relatively small investors in box 3. The proposal in 2019 therefore could have led to small investors feeling compelled to invest in high risk investments. In addition, there is a strong desire to adjust box 3 by 2021, which is not possible for the original proposal.

Partly because of these responses, the proposal to amend box 3 has been revised. This mainly involves finding a different and more balanced distribution of the effects, both in terms of tax relief and increased taxation and the speed with which the adjustment can take place. Due to the short time between the start of the legislative path of this proposal and the proposed date of entry into force, namely January 1st 2021, there was insufficient time to issue the bill in public (internet) consultation.

The new proposal

As of January 1st 2021 the tax burden in box 3 on taxpayers with relatively small assets (less than € 220,000) will become lighter.

  • The tax-free allowance will increase from € 30,846 to € 50,000. For partners that translates to an increase from € 61,692 to € 100,000;
  • The bracket limits are re-established, with the second bracket starting at a box 3 capital of € 50,000 and the 3rd bracket with a capital of € 950,000;
  • As a result of the increase in the tax-free allowance, the number of taxpayers paying tax on income in box 3 will decrease by approximately 900,000. To partially cover this, the tax rate in box 3 will be increased from 30% to 31%.

Quick explanation of the box 3 tax system: In box 3, not the actual yields (dividend, interest, capital gains) on net assets are taxed, but rather an assumed yield.

For savings the assumed yield has decreased from 0,07% to 0,03%

For investments the assumed yield has increased from 5,28% to 5,69%

Value of assets 0,03% 5,69% Effective flat-rate on value of assets
€ 0 – € 50,000 67% 33% 1,90%
€ 50,000 – € 950,000 21% 79% 4,50%
More than € 950,000 0% 100% 5,69%

For example:
Partners with a joint net value of assets (box 3) of € 250,000 will pay € 1,841 in 2020. In 2021 the taxation over the same amount will be € 1,689 (see calculation below).

€ 250,000 -/- € 100,000 (tax-free allowance) = € 150,000

 

Value of assets 0,03% 5,69% Effective flat-rate on value of assets
€ 0- € 50,000 (€50,000) 67% = € 33,500 33% = € 16,500 1,90% (= 0.589% tax rate)
€ 50,000 – € 950,000 (€ 100,000) 21% = € 21,000 79% = € 79,000 4,50% (= 1.395% tax rate)
More than € 9500,000 0% 100% 5,69% (= 1,764% tax rate)
Total € 54,500 €95,500
X 0,03% X 5,69%
€ 16 € 5,434
Taxable base €16 +€ 5,434 = € 5,450
Tax rate is 31% €5,450 x 31% = € 1,286
Tax payable is € 1,689.50

Based on the above, in general the effective tax rate on assets below € 50,000 is 0,589% and the effective tax rate for assets below € 950,000 is 1,395%.

In short, (0,589% x €50,000) = €294,50 and (1,395% x €100,000) = €1,395

In total a tax burden of € 1,689.50

Declaring assets if over € 31,340

In the future, taxpayers with assets worth more than € 31,340, will still have to declare their assets in box 3 in their personal income tax return. The fact that their assets are under the threshold of € 50,000 is irrelevant. The reason for this is twofold: 1. the Dutch tax authorities will share this information with other government bodies and 2. they will use this information to double check and determine whether or not taxes might still be owed.

Effect on combined income

The taxable income in box 3 decreases for everyone. This has a downward effect on the combined income (verzamelinkomen) of this group. This is favorable because a lower combined income will increase the right to means-tested schemes for part of this group. This can be seen, for example, in the healthcare allowance, the child-related budget and the childcare allowance. The proposed changes in box 3 have no effect on the entitlement to and the amount of housing benefit and legal aid. This is because taxpayers who currently already have a taxable income in box 3 are already not eligible for these schemes.